“This is a big new front. This case is scary because if Dallas wins then there are a lot of other counties around the country that are going to follow.”

-Christopher L. Peterson, associate dean and professor at the University of Utah S.J. Quinney College of Law.

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In all of the market mayhem of last week, this article may have slipped by unnoticed: Merscorp, Bank of America Sued by Dallas District Attorney.

We’ve discussed Mortgage Electronic Registration Systems (aka MERS) repeatedly over the years, including its quasi-legal standing and how it illegally failed to pay lawful recording fees to states and counties. (Back in March ’11, we discussed that County & State Litigation vs MERS was coming soon).

The Dallas DA action may be the largest major City/County litigation versus MERS. This may break open the flood gates for other such suits by counties and states around the country.

The politics of this are quite fascinating: The bankers may own the corrupt US Congress, and they may have intimidated or bought off many of the more cowardly State Attorneys General, but there simply are too many counties and District Attorneys representing local interests throughout the country to all be bought off. Buying/intimidating/controlling all of the local country District Attorneys may be like herding cats — nearly impossible.

I am going to stand by my original prediction: The early litigants may get something, but the latter lawsuits will likely result in bankrupting MERS.

An interesting legal question is whether the banks that created MERS — Bank of America, Countrywide, Fannie Mae, Freddie Mac, et. al. — can be reached beyond the corporate shield. Unless someone can demonstrate intentional fraud by design, I tend to doubt it.

Stay tuned . . .

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Source:
Merscorp, Bank of America Sued by Dallas District Attorney
Businessweek, September 21, 2011, 5:46 PM
Margaret Cronin Fisk and Thomas Korosec    http://www.businessweek.com/news/2011-09-21/merscorp-bank-of-america-sued-by-dallas-district-attorney.html

BofA Case May Be Followed by More Mortgage Suits by Counties Margaret Cronin Fisk and James Sterngold
Bloomberg, September 23, 2011
http://www.bloomberg.com/news/2011-09-22/bank-of-america-filing-fee-case-may-open-new-front-in-mortgage-lawsuits.html

See also:
Craig Watkins Makes Good on Threat to Sue Mortgage Processor Over “Tens of Millions”
Robert Wilonsky
Dallas Observer, Sep. 20 2011 
http://blogs.dallasobserver.com/unfairpark/2011/09/craig_watkins_makes_good_on_th.php

Dallas County DA Sues MERS, Says Shadow Recording System Confused Title and Cost Money
Martha Neil
ABA Journal, Sep 20, 2011
http://www.abajournal.com/news/article/dallas_county_da_sues_mers_says_shadow_recording_system_confused_title_and_/

Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?
Ellen Brownposted
Yes Magazine Aug 18, 2010
http://www.yesmagazine.org/new-economy/homeowners-rebellion-could-62-million-homes-be-foreclosure-proof

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On a related note, this embarrassing WSJ article — Niche Lawyers Spawned Housing Fracas — was not their finest moment . . .

Category: Foreclosures, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Counties (Finally) Suing MERS Over Recording Fees”

  1. lurkingowl says:

    Do you even need to breach the corporate shield?

    Doesn’t MERS “own” a stupid amount of real estate on the books. Sure, it might have internal obligations for who is supposed to “own” each of those houses. If they go into bankruptcy, the fines are going to trump any obligations to the bank “owners” of the homes, right? Seems like if MERS goes belly up, the banks and securitizations are going to be screwed because all of MERS internal controls disappear in a puff of smoke.

  2. readerOfTeaLeaves says:

    Verrrry interesting.
    As for deliberate fraud, if the DA has some talented database design experts, there’s a solid shot at getting MERS for fraud.

    This topic has been covered at Naked Capitalism, and some of the comments about database design, easy user access, lack of good security all added up to an extremely sketchy picture. And that’s as politely as I could possibly phrase it.

  3. b_thunder says:

    I bet Geithner already knows how much banks are willing to pony up for a blanket settlement, and now is he’s on the phone with DoJ, screaming at the top of his lungs how important it’s to a) stop DAs from suing MERS and b) to jam the settlement down their collective throat. Otherwise the “housing” and our “economy” will be brought back to the stone age.

    After all, there’s a “tobacco settlement” precedent, right?

  4. rob says:

    Another interesting thing that is going on in my neck of the woods: Banks starting to be held liable for maintenance of shoddy looking properties nearing foreclosure. There are numerous properties around where the grass is not kept cut, trash in the yards, etc. The local government is trying to go after the banks (true property owners) for penalties and fees to keep the places up.

  5. dead hobo says:

    Assume the worst and MERS loses everything. Does it have any assets? I suspect not. No assets = no money damages. But, somehow, they will appear to have unlimited resourced to fund an aggressive defense. Go figure. Financial innovation prevails.

    Since MERS involvement does not appear to affect the perfection of security interest for a given mortgage, then this entire exercise is a waste of effort, money, and time. The bad guys win again. Sorry.

  6. JohnnyVee says:

    Under capitalization is a reason to pierce the corporate shield. What about a claim of aiding and abetting against the banks–setting up MERS to wrongfully avoid paying county fees?

  7. dead hobo says:

    I wonder if someone with the financial resources to put the MERS corporate shield to the test could argue that it is functioning as a general partnership rather than a corporation since significant expenses appear(?) to have unlimited funding while the balance sheet likely say it’s only assets are the computers required to keep everything straight? Even if they could, would it be ultimately worth the effort since MERS appears to have a teflon coating?

  8. dead hobo says:

    Finally, if MERS actually IS forced into bankruptcy due to the expense of litigation without adequate cash flow to support legal fees and damages, what happens to the assets they recorded? Will the mortgages go back to the original assignors or will they be open to bid? What is their value? When you buy a MERS mortgage, do you just buy a journal entry? Do the counties get the mortgages back if MERS goes under? If so, who pays the recording fees? God, I love this shit!

  9. rd says:

    The legal arguments for MERS will be very interesting.

    If they are claiming that they can legally represent who currently owns the note, then they are likely afoul of state and county law.

    If they claim in defence that they actually are not replacing the county deed recorder, then the entire securitization process collapses like a house of cards.

    My suspicion is that the actual value of the fees that they ow the county clerks is small compared to the costs of failure of the securitization process. i think that money will magically appear in their accounts to pay for settlements with all of the counties that belly up to the trough.

  10. dead hobo says:

    http://www.manta.com/c/mm7xpmy/merscorp-inc

    How does a company with 41 employees and $7 million in gross revenue support massive legal fees? Could it really be a general partnership operating as a corporation? Are contributions for legal fees really capital additions? It would really be informative to get a look at 5 years of financial statements with access to supporting detail. I’m just wondering.

  11. dead hobo says:

    Weird … The link above mentions no sales amount but the Google query stated $7 million on this page. I guess Manta has a glitch on their web server. Fortunately, I saved it as a pdf since I noticed this anomaly before closing that window.

  12. Sechel says:

    Actually shocked this hasn’t been made an issue sooner. The fees lost via the mortgage recording tax are huge, and it ‘s not as if local gov’t doesn’t need the money.

  13. mathman says:

    Mark E. Hoffer:

    As Contagion was about the scariest movie i’ve seen in recent years (another that gave me sleepless nights was The Hot Zone), your post and link about TLO just gave me the major willies! i mean, Holy SHIT! Not that i have anything to hide, but who hasn’t made a mistake in their life? How would one possibly get out of the country if one “had to?” Forget using anything electronic and you’d probably have to have an alternate reality already in place “just in case.” Maybe that could be an on-line industry too – getting around the TLO and the one the NSA has. Wouldn’t be easy otherwise.

    dead hobo:
    Fascinating questions and observations. Since corporations attained some kind of slippery “personhood” (which i think is the underlying problem for much of the ills we now suffer as a society trying to support their shenanigans) they get away with more and more legal knots that actual people don’t want to deal with (i guess, since they seem to get their way one way or another) and have gotten it down now to no risk, government sanctioned, no or limited liability, little to no actual assets and the employees aren’t responsible for anything. Yet they can completely wreck an entire national economy.

    We gotta get rid of corporations as “persons.”

  14. wunsacon says:

    >> We gotta get rid of corporations as “persons.”

    We gotta get rid of “corporations”. And *replace* them with persons — in LLP’s or as sole proprietors. Restore personal liability, restore self-responsibility.

  15. wunsacon says:

    What is the statute of limitations on these cases? Aren’t these lazy plaintiffs already “SOL”?

  16. wunsa-

    an ‘ongoing’ Crime, de facto, can not ‘exceed the “statute of limitations”‘, right?
    ~~

    mathman,

    I hear you, though, if “TLO” is, just now, catching your attention/prickling your antennae, you may care to read some (more) of https://www.eff.org/effector/24/32 , for starters..~

    https://www.eff.org
    http://epic.org/

    LSS: the ‘remnants’ of your “Personhood” have been gathered up, and arrayed, against you, for many Moon, now..

  17. Lyle says:

    Assuming some entity still exists that holds the original note (for example new century liquidating trust) it should be possible to proceed on the note without the mortgage. This means you sue to recover the debt, just like if a bill collector did so on an unsecured loan (which is what the loan has become). Basically you force the debtor into bankruptcy, and depending on the state you may or may not get a lot (depends on the states homestead exemption) It is a lot more time consuming but with all the unemployed lawyers around they need jobs. In TX (due to the unlimited homestead exemption) you would not get the house, just whatever loose assets the person has laying around. Of course if you got the judgement and then waived it, you might be able to stick the debtor with a large tax bill, because the current law apparently does not cover that case, but applies to foreclosures and short sales.

  18. kvnbrady says:

    Knock, knock!

    They say a house creates great wealth
    Its price only goes up! up! up!
    But one black swan; ill Wall Street health
    Empties your proverbial cups.

    Knock, knock!
    Who’s there?
    The bank.
    Nobody here!

    [http://ediblecopy.wordpress.com/2011/09/26/knock-knock/]